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How States Can Nominate Qualified Opportunity Zones for 2027: A Guide for Local Governments
State and local officials: learn how to identify eligible tracts and meet IRS requirements for QOZ nominations beginning mid-2026.
By NomadicTax Research Team • 5-8 min read • May 4, 2026
## What Are Qualified Opportunity Zones (QOZs)?
Qualified Opportunity Zones are distressed communities designated by the federal government where investments made through Qualified Opportunity Funds (QOFs) can receive favorable tax treatment under the One, Big, Beautiful Bill. The incentives include deferral and potential exclusion of capital gains for investments held over time. ([irs.gov](https://www.irs.gov/credits-deductions/businesses/opportunity-zones?utm_source=openai))
## Key Changes Under the One, Big, Beautiful Bill
- **Permanent extension** of the QOZ incentive—no longer expiring. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
- New incentives for **rural Opportunity Zones**, meaning census tracts comprised entirely of rural areas may be nominated and given preferential tax treatment. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
- State CEOs will begin the **nomination process** on **July 1, 2026**, for designations effective **January 1, 2027**, and these will last for 10 years until the next round. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
## Eligibility & Nomination Criteria
- Census tracts must be **Low-Income Communities (LICs)** identified in Revenue Procedure 2026-14. There are **25,332 eligible LICs**, and **8,334 of these are rural districts**. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
- Each State, DC, and territories can nominate eligible tracts to become QOZs, subject to limits: no more than **25% of the LICs in the State** may be designated as QOZs. If a State has fewer than 25 LICs, it may nominate all. If it has 25–99 LICs, it may nominate up to 25 tracts. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
## Timeline & Effective Dates
- Nomination window opens **July 1, 2026**, will remain open for 90 days, with an optional 30-day extension. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
- Following nominations, the **Secretary of the Treasury** will certify and designate the selected tracts. Designations take effect **on January 1, 2027**. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
## Actionable Steps for State & Local Officials
1. Review **Revenue Procedure 2026-14** to identify LICs and rural LIC tracts in your jurisdiction. Quantify how many may be nominated under the State’s quota. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-to-states-for-nominating-census-tracts-as-qualified-opportunity-zones-under-the-one-big-beautiful-bill?utm_source=openai))
2. Prepare a nomination strategy: prioritize tracts that meet the economic development needs, are rural if delivering added incentives, or have infrastructure needs. Use mapping tools and data sources.
3. Gather stakeholder input—economic development, local governments, community leaders—to ensure support.
4. Ensure applications are submitted on time: **July 1** to **Early October 2026** (if extended).
5. After designation, communicate with potential investors and developers: Opportunity Funds, property owners, small businesses—clarify new benefits and obligations.
## Examples of Real-World Impact
- Suppose a rural county includes multiple LIC tracts—if designated as QOZs, investors may gain enhanced incentives, boosting real estate or business activity there.
- Non-rural urban area may already have QOZs; adding rural tracts widens reach and opportunities.
- Businesses seeking tax equity or impact investment may be more likely to direct capital toward newly designated tracts.
## Practical Considerations and Risks
- Limitation on number of tracts per State means **not all eligible LICs will be designated**—competition matters.
- Post-designation compliance for QOFs: ensuring 90% asset test, qualified property use, and ongoing reporting.
- For investors, timing of gains to invest before Jan 1, 2027 may be critical to maximize deferral.
- Beware: State boundaries, reporting data, designation maps must align with federal Revenue Procedure for eligibility.